Tie-ups like Equitas-Google Pay can significantly disrupt payments sector

With Covid-19 putting the brakes on bank lending, fintech players have begun to give banks serious competition

The Indian financial sector went into a tizzy last week when Equitas Small Finance Bank announced that its fixed deposit offerings can be availed of by users of Google Pay. Many wondered if the tech giants — Google, Facebook, WhatsApp, WalMart and Amazon — with their strong entry into the Indian payments sector, are ready to are ready to make their next move and offer other financial products.

Google Pay in a blogpost, however, refuted claims that the search giant was trying to encroach into banking territory.

Sajith Sivanandan, business head, payments and NBU, Google APAC, said in the blogpost: “In every geography where Google Pay is present, our stance is consistently one of partnering with the existing financial services and banking systems to help scale and enable frictionless delivery of financial products and services and contribute to the goal of financial inclusion.”

He added: “There have been a few instances where these offerings have been reported as ‘Google Pay’s offerings’, which fuels misinterpretation.”

However, there is no denying that the presence of Big Tech players in the payments sector has changed the entire landscape. Experts believe that they can become significant disruptors when they enter the distribution of financial products.

Sampath Sharma Nariyanuri, fintech analyst, S&P Global Market Intelligence, said in a report: “US big tech companies are taking steps to build super apps in India, in a marked departure from their barebones approach of offering limited payments use cases around the world. Their efforts to link payments with commerce, both online and offline, bear resemblance to the strategies of two Chinese big technology firms — Tencent Holdings and Alibaba.” 

In 2019, Google launched its Spot platform on Google Pay. A Spot is a digital front for a business that is created, branded and hosted by them, and powered by Google Pay. Users can discover a Spot online or at a physical location, and transact with the merchant easily and securely within the Google Pay app. Google Pay has over 400 merchants on Spot, including fintech players.

WhatsApp, too, has a similar feature on WhatsApp Pay. “Overall, a system like this is good for banks as well as customers. Banks get an alternate distribution channel and consumers get a better deal, based on where they can get a better rate of interest,” says Vinay Kesari, general counsel at Setu, the company that has built the application programming interface for Equitas.

Murli Vaidyanathan, senior president and country head, Equitas Small Finance Bank, points out that players like Google Pay have a large number of younger users who are loath to visit bank branches. “GPay has a user base of 370 million who are in the age bracket of 20-40 years. The tie-up gives the bank a foot in the door for enticing customers into impulsive saving.” 

He adds that a tie-up like Equitas-Google Pay does not encroach on the traditional banking sector, since the responsibility of risk about money (deposits) rests with the regulated entity.

However, there is a fear that Big Tech’s entry into credit lending can disturb the equilibrium that many fintech players have created by taking non-banking financial company (NBFC) licences. Take Amazon Pay, for instance. Though it uses UPI to allow customers to make payments, it has also tied up with fintech players like Capital Float and Acko General Insurance for lending and insurance.

Although big banks continue to hold the key to the mobile payment infrastructure, non-banks are the primary payment interface providers that handle consumer and merchant services. The biggest threat banks and card networks may face from surging payments via non-banking apps is the prospect of a China-like situation, where millions of people jump to mobile from cash, leapfrogging the use of cards, the S&P Global Market Intelligence report noted.

Ant Financial and Tencent have cornered the mobile payments market owing to the popularity of their apps, and banks have been cut out as intermediaries in China. While banks in India are not in danger of losing access to low-cost retail deposits, disintermediation risk exists in the form of losing direct payment relationships with consumers.

But here’s the catch. Lending to micro, small and medium enterprises has been a big focus of the lending fintech players. “Credit is not only a risky affair but also a complicated segment for Big Tech to venture into. You may have four or five products on your platform but you have to do each of these businesses well,” says Anuj Kacker, co-founder of FREO, a credit-led neobank that runs MoneyTap.

Moreover, with Covid-19 putting the brakes on bank lending, unsecured lending and credit and personal loans, fintech players have begun to give banks serious competition. Players like PhonePe and Paytm have already started giving in-app Covid-related insurance for hospitalisation and other expenses. 

PhonePe, in its latest Pulse Report, says that its average transaction value since the launch of services — insurance, investments and gold purchases — has shot up by 100-400 per cent. To date, customers from more than 19,045 pin codes across India have bought gold on PhonePe, largely from small towns and cities.

The latest disruptor in the credit lending segment is the account aggregator ecosystem that went live recently. Authorised non-banks, acting as account aggregators, can serve individuals and small businesses by providing a consolidated view of financial data from sources such as loan accounts, deposits, credit cards and investment accounts. Customers seeking better financial products can also use account aggregators to pass on their financial information to banks, insurers and fintechs.

Experts believe India needs multiple players to bring the majority of the population into the banking net. Says Vivek Belgavi, partner-fintech and alliances, PwC India: “Disintermediation driven by technology and fintechs has emerged as a key policy and business lever for universal and ubiquitous banking.”

He notes that there are a lot of bank accounts in India, but the real task is to drive activities in those accounts. The penetration of financial products is in single digits because of the very high cost of serving customers in traditional banking. “With these platforms (like Google Pay) and models, the cost of serving customers has gone down and more people can use the products.”